In the next decade, agencies and holding companies will spend less time fitting into the traditional mold of an ad agency and more time focusing on consumer data and new media. WPP's chief explains why.
The uncertain economy undoubtedly has agency leaders weighing their options as they head into 2010. WPP Group is no exception, and as the conglomerate prepares for 2010 -- and the years beyond that -- it is focusing far less on what can be called traditional advertising. In fact, WPP Chief Executive Sir Martin Sorrell would classify the company as something completely different.
"We're certainly not an advertising agency anymore," Sorrell said, delivering the opening keynote at ad:tech New York. "An ad agency, in the sense that a publication like AdAge would define it, [accounts for] about $5 billion out of our $14 billion in revenue."
So where does the rest of WPP's revenue come from? Surprisingly, the agency has emerged as a leader in consumer insight and is currently the fourth-largest data company in the world and the second largest marketing data company, according to Sorrell.
Consumer insight data is now the biggest part of the company, accounting for $4 billion in revenue, and it's one-third of WPP's strategy for the coming year. The agency will also focus on digital media and on expanding its global reach into Eastern markets.
"Our strategy is summed up in one sentence: new markets, new media, and consumer insight," Sorrell said.
Those new markets include China, India, and South America, and Sorrel predicted that advertising will experience a dramatic shift in power, focusing on Asian and South American markets in the next decade.
"Every single client we deal with is focusing on those parts of the world for growth," Sorrell said. "Twenty-six percent of our business is already in those countries. We want it to be one-third, and we're predicting that will happen in five years."
The third aspect of WPP's future strategy is digital, which already accounts for 25 percent of its revenue, or roughly $3.5 billion. Digital and new media are the strongest forces of growth, with all of WPP's clients spending at least 12 percent of their worldwide budgets online in one way, shape, or form, Sorrell said.
WPP does not expect growth in digital to stop any time soon. Consumers spend 20 percent of their time online, and that number will continue to grow. What could potentially propel more attention toward digital is a focus on branding through the recession, something that many companies are resisting by cutting costs.
"New media gives us quantitative-based opportunities to evaluate media spending," Sorrell said. "If you look at every statistical piece of info put together by advertising agencies and by independent consulting companies, it all points to the fact that companies that invest in brands in times like these benefit when we come out of the recession. Penetration is much stronger when you come out of the recession if you invest."
Two years ago, 100 percent of the growth in the industry came from growth in China and on the internet, Sorrel said, but in 2009, those two areas will be responsible for more than 100 percent of the growth -- they'll actually grow and make up for all the losses that come from industry cutbacks.
According to Sorrell, clients will begin putting up to 20 or 25 percent of their marketing budgets into digital over the next five years.
"Why hasn't it already happened?" he asked. "The people who run clients, media buyers, and agencies tend to be an old vintage. They tend to be resistant to change. If you spend 10 to 15 years trying to get to the top of the company, you really don't want a change. The last thing you want to do is get up every morning like I do and deal with massive changes on a daily basis. It's really uncomfortable."
Rich Cherecwich is the deputy editor for iMedia Connection.
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